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Thursday, March 1, 2012

East Africa’s Energy Bonanza

Tue, 28 Feb 2012 - by Business Monitor International

Over the last two years, oil and gas exploration in East Africa has gathered pace as high oil global prices have spurred ‘frontier’ exploration. In particular, a number of large gas discoveries have been made in the Rovuma Basin, off the shore of Mozambique and Tanzania. Licence operators have now proved-up between 1.5trn and 1.9trn cubic metres (tcm) of gas in place, with further exploration and appraisal (E&A) drilling scheduled for 2012.

Exploration is most advanced in Mozambique, where Anadarko Petroleum has put forward an initial commercialisation plan for its five discoveries to date. Anadarko envisages an liquefied natural gas (LNG) export facility with a minimum two-train capacity of 10mn tonnes per annum (tpa), equivalent to exports of approximately 14bn cubic metres (bcm) per annum. KBR is now conducting a pre-FEED (front-end engineering design) study for the prospective facility on behalf of Anadarko. A final investment decision is targeted for end-2013 with first production pencilled in for 2018.

Project costs are expected to hit approximately US$2,800-3,000 per tonne of new capacity, or US$28-30bn. This is in line with similar projects currently under development in Australia, but is still expensive as Tanzania lacks critical infrastructure. Given the price tag, it is likely that Anadarko will team up with Area-4 licence operator Eniin order to spread capital investment costs. If this is the case, a combined LNG facility could be expanded to as many as six trains or 30tpa, equivalent to exports of approximately 41bcm per annum. This could make Mozambique Africa’s second largest gas exporter based onBMI’s 2018 net-export forecasts.

The outlook is also promising for Tanzania’s Rovuma Basin, whereStatoil hit gas last week. At present, not enough gas is in place to justify an LNG export terminal, but, with further drilling scheduled for 2012, there is plenty of scope for optimism.

Onshore Outlook

The stand-out onshore prospect in East Africa is Uganda’s Albertine Basin, where UK independent Tullow Oil struck oil in 2006. Tullow estimates that up to 1.1bn barrels (bbl) of probable oil reserves (P50) have already been discovered in the region. With many prospects still to be drilled, Tullow believes the basin could hold an additional 1.4bn bbl of probable reserves.

The development of these Albertine Basin prospects has been delayed because of a protracted dispute between Tullow and the Ugandan government over the terms of a US$2.9bn farm-out deal. Tullow finally received Kampala’s blessing on February 2, 2012, paving the way for up to US$10bn of oil industry investment. The British firm estimates that this investment could see Uganda produce as much as 350,000 barrels per day (b/d) by 2018, more than the estimated 2012 output of the likes of Equatorial Guinea, Gabon, and Congo (Brazzaville).

Tullow’s success is generating further interest in the region, with the Democratic Republic of Congo’s Albertine Basin top of the list. Exploration is also set to kick off this year in Kenya and in Ethiopia’s East African Rift Basin and Tanzania’s Selous Basin. It remains to be seen whether these campaigns will successful, but they are testament to East Africa’s huge resource potential. With oil prices set to hold firmly above US$100/bbl, that interest is only likely to grow.